Asymmetric cointegration with threshold adjustment model of exchange rates and the trade balance in Turkey

Abstract

This paper aims to investigate the long-run equilibrium relationship between the trade balance and exchange rates in Turkey using the asymmetric error correction model with threshold cointegration. The results provide new evidence for the asymmetric long-run relationship between the trade balance and exchange rates. Besides, deviations from the long-run equilibrium due to a relative increase in real exchange rates have a lower speed of adjustment in comparison to the deviations caused by a relative decrease in real exchange rates. © 2017 Elsevier B.V., All rights reserved.